2007 REGISTRATION DOCUMENT

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2007 REVIEW OF OPERATIONS4 OutlookAssets securitised as part of proprietary securitisation transactions thatdo not meet the Basel II eligibility criteria remain in the portfolio towhich they were initially assigned. In this case, BNP Paribas is requiredto hold capital as if they had not been securitised.Capital is calculated in respect of commitments granted by BNP Paribasto securitisation vehicles on behalf of third parties. The calculation isbased on external ratings where possible, or on the supervisory formulain all other cases.As eligible external ratings typically exist for positions acquired in asecuritisation arranged by third parties or amounts granted to thesesecuritisation vehicles, these are included in the calculation of capitalusing the external ratings-based approach.Counterparty riskRegarding counterparty risk, EAD is measured based on an internalassessment procedure which is subsequently integrated within thecredit risk assessment tool. This tool has been used by the Group for thepast ten years and is updated on an ongoing basis. It is based on MonteCarlo simulations which allow analysts to identify likely movementsin exposure amounts. The stochastic processes used are sensitive toparameters (particularly volatility and correlation) calibrated on historicalmarket data. Changes in exposure amounts are calculated up to thematurity of the corresponding transactions.To aggregate exposures, the system takes into account the legalenvironment of each transaction and counterparty, and any netting ormargin call agreements.Market riskAs the new Basel II capital framework does not imply any immediatechanges in respect of market risk, this continues to be calculated by theinternal model used under Basel I. However, the model will be adjustedby 2010 to reflect the sudden risk of default and comply with regulatorychanges.Equity holding riskThe Bank has developed its own model in respect of equity holding risk,under which gross capital requirements are reduced by a portion ofthe unrealised capital gains existing at the date of calculation. Under aprudent approach considered by the Commission Bancaire as complyingwith applicable regulations, these capital gains no longer qualify as partof regulatory capital.Capital to be held against equity investment risk is calculated by assessingfuture market volatility using Monte Carlo simulations. The stochasticprocesses used (equities, and car and property price indexes) are calibratedon historical data. Investments in unlisted companies are treated similarlyto listed investments using the appropriate correlations.Other assetsRegulatory capital requirements in respect of other assets such asproperty, plant and equipment or intangible assets are the same asunder Basel I.Operational risk< Contents >The principles for managing and measuring operational risk are definedcentrally at the level of the Group, and the operational risk model isapplied consistently throughout the organisation.Capital to be held against operational risk is calculated based on dataregarding internal and external losses, and changes in the economicenvironment and in internal control. The calculation also takes intoaccount any analyses of potential risk scenarios.Data on historical or potential risk incidents will be compiled based ona hierarchy of core Group processes and on the organisation of eachbusiness line/country, resulting in a comprehensive and coherent riskreporting process.12345678910111042007 Registration document - BNP PARIBAS
2007 REVIEW OF OPERATIONSOutlook 4SECOND PILLAR: SUPERVISORY REVIEWPROCESSThe second pillar of the new Basel II capital framework prescribes howsupervisory authorities and banks can effectively discuss the appropriatelevel of regulatory capital. Discussions will look at all of the risks incurredby the Group and their sensitivity to crisis scenarios, and will also considerRisks impactingthe Group’s solvencyRisks impactingthe Group’s value(share price)how it expects these risks will evolve in light of changes in the Group’sbusiness going forward.BNP Paribas continues to fine-tune its tools for measuring economiccapital. It is also in the process of identifying the risks that it considerscould be eliminated through appropriate management and controlprocedures, thereby avoiding unnecessary capital charges. The Group hasdrawn up the following risk typology chart as a result of its analysis:Risk defined by Frenchbanking regulationsRisk defined byBNP Paribas< Contents >Method for measuringand managing risk12Credit risk ✓ ✓ Economic capitalEquity holding risk (1) ✓ ✓ Economic capitalOperational risk ✓ ✓ Economic capital3QuantifiablerisksNonquantifiablerisksMarket risk ✓ ✓ Economic capitalConcentration risk (2) ✓ ✓ Economic capitalAsset-Liabilitymanagement risk (3) ✓ ✓ Economic capitalBusiness risk ✗ ✓ Economic capital (5)Insurance risk (4) , includingsubscription risk ✗ ✓ Economic capitalProcedures; stock marketStrategy risk ✓ ✓multiplesLiquidityand refi nancing risk ✓ ✓Quantitative/qualitativerules and stress testsReputation risk ✓ ✓ Procedures45Risks identified under the First Pillar.Risks identified under the Second Pillar.(1)Equity holding risk is monitored as part of BNP Paribas’ capital market risk management framework.(2)Concentration risk is managed as part of BNP Paribas’ credit risk management framework.(3)Asset-Liability management risk mainly corresponds to overall interest rate risk as defined by banking regulations.(4)Insurance risk does not fall within the scope of banking business; insurance activities give rise to market, operational and subscription risks.(5)The economic capital model is in the process of being adjusted to reflect the modelling of this risk.6This internal assessment tool will be gradually embedded into the Group’sdecision-making and management processes. The notion of economiccapital will be used more widely throughout the organisation, supportedby analyses considering the impact of crisis scenarios and business plans.The tool is developed at Group level and adapted to each business asappropriate. Assessments of legal entities are based on a simplifiedapproach.THIRD PILLAR: DISCLOSURE REQUIREMENTSThe third pillar of Basel II introduces significant new risk disclosures,particularly for companies using advanced approaches to risk. Thecomplete set of disclosures will first be issued upon the publication of our2008 annual report, in accordance with applicable regulations. Howeveras in previous years, this year’s report already includes information oncredit quality, as well as on the type and level of exposure arising oncomplex financial instruments.78910112007 Registration document - BNP PARIBAS 105
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2007REGISTRATION DOCUMENT
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1 TheTHE BNP PARIBAS GROUPBNP Parib
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THE BNP PARIBAS GROUP1The Group’s
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1 ShareholderTHE BNP PARIBAS GROUPi
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6INFORMATION ON THE PARENT COMPANY
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8 DocumentsGENERAL INFORMATIONon di
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8 FoundingGENERAL INFORMATIONdocume
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8 YearGENERAL INFORMATIONended 31 D
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10 PersonPERSON RESPONSIBLE FOR THE
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11TABLE OF CONCORDANCE< Contents >H
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2007 REGISTRATION DOCUMENT

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